Delhi High Court Clarifies the Scope of Arbitration in Intellectual Property Disputes

Hon’ble High Court of Delhi in the case of Hero Electric Vehicles Private Limited and Another v. Lectro E-Mobility Private Limited and Another, (2021 SCC Online Del 1058), dealt with the issue of arbitrability of trademark infringement and passing off between two family groups arising from Family Settlement Agreement (“FSA”) and Trademark and Name Agreement (“TMNA”).

The plaintiffs, Hero Electric Vehicles Private Limited and others, filed a suit to restrain the defendants, Lectro E-Mobility Private Limited and others, from using the “HERO” trade mark on and in relation to electric bikes and bicycles. The defendants filed an application under Section 8 of the Arbitration and Conciliation Act, 1996, requesting the court to refer the matter to arbitration citing the arbitration provisions contained in the FSA and TMNA.

The court while deciding the issue whether IP disputes are amenable to arbitration, it drew attention to the recent case of Vidya Drolia v. Durga Trading Corporation, [(2021) 2 SCC 1], which depicts that where there exists a valid arbitration agreement, the disputes ought to be referred to arbitration unless there is a clear “chalk and cheese” case of non- arbitrability. Therefore, to prevent arbitration, the cause of action in its entirety must be non-arbitrable. Additionally, Section 8 and 11 are judicial in nature, and Arbitration Tribunal has the sole authority to decide on its own jurisdiction. In the present case, the court needs to establish one, a valid arbitration agreement, and two, the subject matter of the dispute is arbitrable.

In the present case, the court observed that there is a valid arbitration agreement between parties as can be observed from FSA and TMNA. Further, the essential infraction, as alleged to have been committed by the defendants, was not of the provisions of the Trade Marks Act, but of the provisions of the FSA and TMNA. The dispute in the present case is in relation to rights of use by parties and not in relation to grant or registration of trade marks. Therefore, the dispute is primarily a contractual dispute and any violation of the Trade Marks Act exists supplementary to the contractual dispute.

Therefore, the Court concluded that the right asserted by the plaintiffs is not a right that emanates from the Trade Marks Act, but a right that emanates from the FSA and the TMNA, and is not asserted vis-a-vis the whole world, but is asserted specifically vis-a-vis the defendants. Thus, the dispute is in relation to a right in personam that is subordinately arising out of right in rem and hence was referred to arbitration. Resultantly, the court directed the parties to appoint arbitrator(s) in accordance with the covenants of the FSA and TMNA.